We are in a golden age of e-commerce. From clothes to holidays, Australians love to surf the net and fill up their virtual baskets with online bargains. The beauty of the internet is that it opens up a global marketplace to Australian consumers. However, what happens when a product bought online from an overseas retailer is faulty, or a service is not up to standard? Do Australians have any rights? The simple answer is ‘yes’ – thanks to the Competition and Consumer Act 2010 (Cth). However, there are jurisdictional difficulties to be aware of.

THE LAW

Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Act) sets out consumer protection provisions in the Australian Consumer Law (ACL).

The Act does not limit the application of the ACL to Australian companies but stretches its reach beyond Australia’s borders. This is by virtue of s5(g) which extends the ACL to ‘bodies corporate incorporated or carrying on business in Australia’.

As a result, foreign companies which carry on business in Australia are subject to the ACL. Importantly, this includes the statutory guarantees of: goods being of acceptable quality (s54), goods being reasonably fit for purpose (s55), services being rendered with due care and skill (s60), and services being reasonably fit for purpose (s61).

When a consumer suffers loss or damage as a result of a breach of a statutory guarantee, they can bring an action for damages under s236 of the ACL.

When, therefore, is a company said to be ‘carrying on business in Australia’? The Act does not define this term. However, Australian Competition and Consumer Commission v Valve Corporation (No. 3)[i](Valve No. 3) provides some assistance.

ACCC v VALVE CORPORATION (NO. 3)

Background

Valve Corporation (Valve), an American company, sold computer games online to consumers around the world. A number of Australian consumers were not satisfied with the quality of Valve’s games and sought refunds. However, Valve stuck to its ‘no refund’ policy. Consumers consequently complained to the Australian Competition and Consumer Commission (ACCC).

The dispute

Under s54 of the ACL, there is a statutory guarantee that goods are of acceptable quality. This guarantee cannot be modified or excluded and any contractual term that tries to do so is void under s64. The ACCC therefore sued Valve for making false representations and misleading Australian consumers in breach of the ACL.

Valve defended the proceedings on three main grounds:

The conduct did not take place in Australia and Valve did not ‘carry on business in Australia’.

The proper law of the contract was not Australian law, and therefore the ACL did not apply.

The computer games were not ‘goods’ under s54.

Was Valve carrying on business in Australia?

Justice Edelman heard the case in the Federal Court. His Honour did not need to rule on this question because he found that the conduct had occurred in Australia. However, as the parties had dealt with this issue in such detail, Edelman J addressed it.

Justice Edelman noted the lack of authority on the meaning of ‘carrying on business in Australia’ under the Act.[ii] However, he noted that when the courts have examined this phrase under other legislation, such as the Trade Practices Act 1974 (Cth) and the Corporations Act 2001 (Cth), the concepts have been applied according to their ordinary meaning. Referring to Merkel J in Bray v F Hoffman-Law Roche Ltd,[iii] his Honour noted that the ordinary meaning usually involves a series or repetition of acts which commonly involve:

‘…activities undertaken as a commercial enterprise in the nature of a going concern, that is activities engaged in for the purpose of profit on a continuous and repetitive basis’.[iv]

In this ordinary sense of the words, Edelman J found that Valve was carrying on business in Australia for these reasons:

Valve had numerous Australian users and earned significant revenue in Australia;

Valve deposited content on servers in Australia;

Valve had significant personal property in Australia, including servers;

Valve incurred significant monthly expenses in Australia;

Valve used third parties who provided proxy caching in Australia; and

Valve entered contracts with third party service providers who provided content around the world, including Australia.

Did the ACL apply if the proper law of the contract was not Australian law?

Valve’s contracts contained an applicable law clause in favour of the law of Washington State. Valve therefore argued that as Australian law was not the law of the contract, the ACL did not apply.

The ACL has a conflict of laws provision at s67 that reads as follows:

‘67 Conflict of laws

If:

the proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or

a contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:

the provisions of the law of a country other than Australia;

the provisions of the law of a State or a Territory;

the provisions of this Division apply in relation to the supply under the contract despite that term.’

In accordance with s67(a), the applicable law clause was disregarded when determining the proper law of the contract. In conducting the common law assessment of the proper law of the contract, Edelman J looked at the ‘system of law with which the transaction has its closest and most real connection’.[v] His Honour concluded that the proper law of the contract was also that of Washington State.

Given that the law of Washington State was the proper law of the contract, s67(a) was irrelevant and did not apply the ACL to the supply of computer games.

However, Edelman J found that s67(b) prevented Valve from relying on Washington State law. Although his Honour had found that the law of Washington State was the proper law of the contract, s67(b) states that if a contract purports to substitute the ACL for the law of a foreign country, the ACL will apply despite that term.

As a result, Edelman J found that Valve was subject to the ACL despite the law of Washington State governing the contract.

Justice Edelman went on to find that the computer games were goods and that Valve had breached the ACL.

Comment

The decision in Valve No. 3 demonstrates that Australians have rights under the ACL when buying goods or services from foreign corporations over the internet. Such rights are afforded to consumers despite a foreign law being the law of the contract.

The key to whether a consumer contract is covered by the ACL is whether the foreign corporation carries on business in Australia. When making this assessment it is necessary to look at the connecting factors to Australia. Justice Edelman’s list above is not exhaustive.

If the foreign retailer is a corporation that ‘carries on business in Australia’, the consumer will be afforded the protections of the ACL. However, there will be jurisdictional difficulties to overcome in a damages claim against a foreign defendant under the ACL. The case of Gonzalez v Agoda Co Pte Ltd[vi] (Gonzalez) is illustrative of this.

GONZALEZ v AGODA CO PTE LTD

Background

The plaintiff booked a hotel in Paris through the defendant’s website. During her stay, she slipped when exiting the shower and sustained a serious knee injury.

The plaintiff alleged that the shower doors did not close fully, causing her to slip on soapy water on the floor.

The claim

Under the defendant’s terms and conditions, once the plaintiff had selected hotel accommodation, she made an offer to the defendant to book it for the stipulated price. The defendant accepted the offer and charged the cost of the accommodation to the plaintiff’s credit card. The defendant accepted the offer by sending an email confirmation to the plaintiff with a prepaid hotel voucher that had to be presented at check in.

The defendant was a foreign company incorporated in Singapore. However, the plaintiff alleged that the defendant ‘carried on business’ in Australia for the purposes of s5 of the Act. In particular, the plaintiff argued that as the defendant accepted the plaintiff’s offer by email, their contract was formed in Australia. This is by virtue of the common law rule that when a contract is entered by instantaneous modes of communication, it is made where the acceptance is received.[vii] Thus the plaintiff alleged that the defendant carried on business in Australia because it formed contracts in Australia with Australian consumers.

The plaintiff alleged further connecting factors between the defendant and Australia, including:

The defendant wholly owned a related entity, Agoda International Pte Ltd, which is a foreign company registered in Australia with a registered office in Sydney;

One of the defendant’s directors in Singapore also sat on the board of Agoda International Pte Ltd;

The defendant’s website had the facility for customers, such as Australian consumers, to sign up as a member and directly receive special offers;

The defendant used technology in Australia to provide web content to Australians;

The defendant advertised to Australian consumers;

Australian consumers made payment directly to the defendant in Australian dollars;

The defendant’s website required consumers to register their country of residence and thus the defendant was aware that it was contracting with Australians in Australia.

The plaintiff argued that the contract with the defendant conferred on her the right to be provided with, use and enjoy hotel accommodation and hotel facilities for the period of the stay. She alleged that the said contract was therefore a contract for services under s4 of the Act and as such the statutory guarantees of the ACL applied.

The plaintiff therefore claimed that the defendant was liable for her injuries, for breach of implied terms of the contract, and breach of ss60 and 61 of the ACL.

Conduct of the proceedings

The plaintiff filed a Statement of Claim dated 19 May 2016 in the Supreme Court of New South Wales (NSW). She served it on the defendant at its registered office in Singapore without leave in accordance with Rule 11.2 and Schedule 6 of the Uniform Civil Procedure Rules 2005 (UCPR) as in force at the time.[viii]

The defendant filed a Notice of Motion for the plaintiff’s Statement of Claim to be set aside, the proceedings to be dismissed or stayed, and for the court to decline to exercise jurisdiction. Such orders were sought under Rules 12.11(1)(a), (b), (g) and (h) and Rules 11(2)(a) and (b) of the UCPR. In short, the defendant alleged that the Statement of Claim had not been validly served, that it was not authorised under the UCPR, that the Supreme Court of NSW did not have jurisdiction over the claim, and that NSW was an inappropriate forum.

By the time that the Notice of Motion was heard, the defendant had conceded that service of the Statement of Claim without leave was authorised by the UCPR and that it had been validly served.

The remaining issues to be decided were therefore whether the Supreme Court of NSW was an inappropriate forum to hear the claim and, if not, whether the claim had sufficient prospects of success to warrant putting the overseas defendant to the time, expense and trouble of defending it.[ix]

Inappropriate forum

The contract contained a clause that the courts of Singapore determine disputes.

A valid exclusive foreign jurisdiction clause puts the onus on a plaintiff to demonstrate why the proceedings should continue in the chosen forum.[x] In the absence of an exclusive jurisdiction clause, the burden is on the defendant to show that the jurisdiction seized is a ‘clearly inappropriate forum’.[xi]

The defendant relied on its exclusive jurisdiction clause in its application for the Supreme Court of NSW not to exercise jurisdiction.

The plaintiff countered the defendant’s arguments as follows:

The exclusive jurisdiction clause was not incorporated into the contract. Given the detriment to the plaintiff of this clause, it should have been brought to her attention under the ‘red hand’ rule which is arguably applicable to online contracts.[xii] Furthermore, the plaintiff did not have to click a box to agree to the terms and conditions. There was therefore no identifiable signature to indicate her agreement to the terms.

In the event that the exclusive jurisdiction clause was incorporated into the contract, it was an unfair contract term under the ACL and therefore void under s23(1)(a). The term was unfair under s24 as it caused significant imbalance between the parties’ rights, was not reasonably necessary to protect the defendant’s interests, and would cause detriment to the plaintiff if relied on. Moreover, it met the example of an unfair contract term in s25(k) as it was ‘a term that limits, or has the effect of limiting, one party’s right to sue another party’.

The exclusive jurisdiction clause is only relevant to the claim for breach of contract. In respect of the claim for breach of the ACL, pursuant to s67(b) of the ACL as set out above, the defendant would not be able to avoid the ACL by including an exclusive jurisdiction clause which ‘purports to substitute, or has the effect of substituting’ a foreign country’s law for the ACL’s consumer guarantees.

The plaintiff further argued that the relevant factors weighed significantly in favour of the proceedings continuing in NSW. Factors cited included location of witnesses, availability and funding of legal services and the fact that the plaintiff had rights under Australian legislation that were the subject of the proceedings.

Decision

Justice Button heard the defendant’s Motion and found in the defendant’s favour.

His Honour found that the exclusive jurisdiction clause was incorporated into the contract.

Justice Button further found that the exclusive jurisdiction clause was not unfair and therefore not void under the ACL. However, his Honour did not specifically address s25(k) of the ACL, despite accepting that the plaintiff was not particularly wealthy and that ‘no win no fee’ agreements were not available in Singapore.

His Honour also remained silent on the plaintiff’s argument that if the exclusive jurisdiction clause was properly incorporated and not an unfair contractual term, it would apply only to the plaintiff’s claim for breach of contract and not for breach of the ACL.

As his Honour upheld the exclusive jurisdiction clause, it was for the plaintiff to demonstrate that the proceedings should continue in NSW. Justice Button found that while the plaintiff had shown that NSW was not a ‘clearly inappropriate forum’, she had not overcome the burden of the exclusive jurisdiction clause.

Finally, his Honour found that but for the exclusive jurisdiction clause, the claim had sufficient prospects of success to put the defendant to the expense of defending it in NSW.

His Honour therefore permanently stayed the NSW proceedings.

As a result, to pursue her claim the plaintiff would have to commence proceedings against the defendant in Singapore. Thus a Singaporean court rather than an Australian court would determine the plaintiff’s rights under the ACL and, importantly, assess the meaning of ‘services’ under the Act.

The plaintiff filed a Notice of Intention to Appeal. However, she subsequently decided not to pursue an appeal.

Comment

Gonzalez illustrates the jurisdictional difficulties involved with bringing proceedings against a foreign company under the ACL. In particular, the Statement of Claim must be authorised by the UCPR and validly served abroad. Plaintiffs should also expect forum to be disputed.

CONCLUSION

The contracts in Valve No. 3 and Gonzalez were both formed online between foreign corporations and Australian consumers. In both cases, the contracts had exclusive jurisdiction clauses in favour of the defendants’ home jurisdictions. While the Federal Court upheld the rights of Australian consumers in Valve No. 3, unfortunately for Mrs Gonzalez the Supreme Court in her action upheld the exclusive jurisdiction clause and therefore denied her from pursuing her rights under the ACL in Australia. This is in contrast with the Federal Court’s remarks that when a corporation enters a foreign jurisdiction it is required to deal with the foreign legal system found there.[xiii]

This is a developing area of law. With consumer protection at the heart of the Act, further court decisions are welcomed in order to clarify and enhance Australian consumers’ rights against foreign companies.

Written by Victoria Roy.

Victoria Roy is Practice Group Leader of the Travel Law Group at Stacks Goudkamp. She is a dual qualified (England and Wales/NSW) personal injury solicitor. She acted for the plaintiff in Gonzalez.

‘This article – ‘Online shopping: Do Australians have rights against overseas retailers?’ – first appeared in Precedent, the journal of the Australian Lawyers Alliance, issue 146, published in June, 2018 (Sydney, Australia, ISSN 1449-7719), pp10-14. It has been reproduced with the kind permission of the author and the ALA. For more information about the ALA, please go to: www.lawyersalliance.com.au.’